TSMC’s Growing Electricity Demand Could Stress Credit In 2030 Warns S&P

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The Taiwan Semiconductor Manufacturing Company (TSMC) faces a credit risk from its high electricity demand, notes a new report from S&P Global Ratings. TSMC is the most valuable Taiwanese firm in terms of market capitalization, and it is also a major electricity consumer in the country. According to the report, TSMC's electricity consumption accounts for 8% of Taiwan's usage as the firm speeds up the production of the advanced 3 nanometer chips, with one wafer unit requiring 40.5 kilowatt hours of electricity in 2023.

This uptick in usage comes as data from Taiwan's state owned electricity provider TaiPower shows that the island's electricity reserve percentage continues to struggle to meet the government's target of 15%, particularly because the chip manufacturer's power needs grow even when Taiwanese household electricity consumption is dropping.

TSMC Could Account For Nearly 24% Of Taiwan's Electricity Use By 2030 Points Out S&P

Data compiled by the S&P shows that TSMC's electricity consumption has more than doubled between producing 10 nanometer products to its leading edge 3 nanometer chips which entered high volume mass production in 2023. The firm's 10 nanometer production started in 2016, and back then, it consumed ~110 GW of electricity which accounted for a little over four percent of Taiwan's consumption and over six percent of Taiwan's industrial sector consumption.

Since then, by 2023, the consumption sat close to 250 GW and accounted for eight percent of the island's electricity use and nearly 16% of the industrial sector's demand. However, the S&P's bull case scenario for TSMC's wafer output speculates that from eight percent in 2023, the fab could account for nearly a quarter, or 23.7% of Taiwan's electricity use by 2030.

This scenario is modeled on the assumption that the fab's wafer shipments will grow by 90% over 2023 levels and push the fab's electricity consumption to 794 GW. The least optimistic scenario models a 50% wafer growth for 418 GW electricity consumption by 2030.

The shift to 3 nanometer chip fabrication is driving these explosive electricity consumption assumptions. The physical limits of semiconductor fabrication require chip manufacturers to use finer wavelengths of light to print billions of circuits on a wafer. For technologies marketed as sub 7 nanometer, this necessitates the use of EUV machines, which consume more electricity than their DUV predecessors.

The report shows that in 2022,  when TSMC started mass producing 3 nanometer chips, its kilowatt of power consumption per 12 inch equivalent wafer mask layer was 27.7 KW. As 3 nanometer production scaled up in 2023, the consumption jumped to 40.5 KW. Volume contributions by different manufacturing technologies also support this assumption of 3 nanometers driving higher consumption. TSMC's 2022 revenue saw 47% of sales through 7 nanometer or higher nodes,  dropping to 42% in 2023 and 33% as of Q2 2024.

Apart from scaling up leading edge chip manufacturing, high demand for AI products has also led TSMC to increase its packaging capacity. Chip packaging is one of the final stages of production as it ensures that the silicon can be used in performance intensive GPUs for AI computing. The growth in electricity demand comes as Taiwan struggles to maintain high electricity reserves.

Between 2013 and 2023, the island's electricity percentage operating reserve has been above the government's 15% target in only three years. Over the same time period, TSMC's electricity consumption has grown even during periods of dropping household electricity demand. As of 2023, TSMC's electricity consumption of 232 GW was more than twice of Intel's roughly 90 GW and SK hynix's 125GW, according to sustainability reports studied by S&P.

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